This Company Is the Best Investment Pure Play in Wearables

There is a lot of focus by both investors and consumers on wearable technology right now -- and rightly so. A recent Research and Marketsreport pegs the worldwide wearable tech market to be worth $173 billion by 2020.

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Tracking down the best pure play in wearables is difficult, especially considering that most are volatile micro-cap stocks. And while we are looking for a stock with lots of exposure to wearables, we also want it to be a solid investment that will be around for the long haul.

That is why the best pure play in wearables right now is notexactly a pure play.Ambarellais knee-deep in the wearables market, growing quickly, and has lots of room for future expansion -- all part of its potential as a great long-term investment.

What Ambarella doesThe company makes systems-on-a-chip, or SoC, for wearable devices like GoProaction cameras. These SoCs allow for low-power, high-definition video compression and processing that is unrivaled by competitors.

The GoPro Hero 4. Source: GoPro

Xiaomi, the China-based tech company, has started to use Ambarella SoCs for its action cameras as well, allowing Ambarella to dominate this corner of the wearable market. While GoPro and Xiaomi compete in the wearable-action camera space, Ambarella benefits regardless by having the leading system-on-a-chip technology.

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Right now, about 40% of the top line comes directly from GoPro, with the rest of its revenue coming from other companies, including earnings from drone cameras, security cameras, and intelligent automotive chips.

Where Ambarella is going Ambarella has been picking up steam during the past 12 months, with its stock price skyrocketing nearly 170%. And the company posted strong growth in its latest fiscal fourth quarter 2015 earnings report, as well. Revenue was up 62%year-over-year, and net income jumped 176%.

The new A12W SoC. Source: Ambarella

Better yet, Ambarella has plenty of opportunities to look forward to. In an earnings call, CEO Fermi Wang talked about the new A12W SoC, which "enables the development of a new generation of compact, ultra low power, body worn HD video cameras suitable for police and security applications." Wang said the SoC can encode two video streams at the same time for dual-lens cameras and streaming.

That comes on the heels of a recent research report put out by Accenture, which said that "Adoption of body-worn cameras is likely to increase as law enforcement agencies start to see the positive results coming from pilot programs spanning the globe from New York to London to Sydney." And the Obama administration has proposed $263 million of spending to fund 50,000 body-worn cameras.

While we still have to wait to see what kind of business materializes from the new A12W chip, it is clear the SoC is being released at just the right time. And with Xiaomi and GoPro committed to using Ambarella technology, in addition to the growing market for body-worn cameras, the next few years could keep the good times coming for the company.

Final thoughtsWith a market cap of just $2.29 billion, Ambarella is small enough for wearable investors to see significant growth -- with the added benefit of already being a leader in the wearable tech space. The key for the company right now is to maintain its dominance in that space with its current chips and to build out new revenue streams as it is trying to do with new products.

While Ambarella may not be an exclusive pure play in the wearable-tech market, its stock growth, SoC leadership position, and potential body-worn camera opportunities make it one of thebest wearable plays for investors right now.